As this situation develops, we will publish periodic updates with more information. Please get in touch if you have specific questions about your tax situation. Read through the updates below to learn the latest news regarding Covid-19 and your taxes.
“Too long, didn’t read” version: If the IRS does not already have your direct deposit information from your 2018 or 2019 tax return, wait for our next email next week for the web portal where you can enter your information. If you don’t have a filing requirement, enter your direct deposit now at the non-filers portal. Forget April 15 – tax day is July 15. Need cash? You may be able to tap into your retirement funds for a loan. Struggling business? Apply for loans/grants now before funds run out.
Stimulus Payments
For people without a filing requirement:
The Treasury Department and the Internal Revenue Service today launched a new web tool allowing quick registration for Economic Impact Payments for those who don’t normally file a tax return.
The non-filer tool, developed in partnership between the IRS and the Free File Alliance, provides a free and easy option designed for people who don’t have a return filing obligation, including those with too little income to file. The feature is available only on IRS.gov, and users should look for Non-filers: Enter Payment Info Here to take them directly to the tool. This tool is ONLY for non-filers.
For people who need to provide direct deposit information:
A second tool will be released towards the end of this week to provide taxpayers with payment delivery date and for taxpayers to provide direct deposit information. We will send an updated link when the web tool goes live.
COVID-19-Related Distributions from IRAs Get Tax-Favored Treatment
If you are an IRA owner who has been adversely affected by the COVID-19 pandemic, you are probably eligible to take tax-favored distributions from your IRA(s) of up to $100,000.
Eligible individuals can recontribute (repay) CVD amounts back into an IRA within three years of the withdrawal date and can treat the withdrawals and later recontributions as federal-income-tax-free IRA rollover transactions. In effect, the treatment allows you to borrow up to $100,000 from your IRA(s) and recontribute the amount(s) at any time up to three years later with no federal income tax consequences. There are no income limits on the withdrawals, and there are no restrictions on how you can use money during the three-year recontribution period. If you want to take advantage of this strategy, discuss with us to make sure you qualify first!
Retirement Account Required Minimum Distribution Rules Are Suspended for 2020
The CARES Act suspends all RMDs that you would otherwise have to take in 2020.
The suspension applies equally to your initial RMD if you turned 70 1/2 last year and did not take that initial RMD last year (the initial RMD is actually for calendar year 2019). Before the CARES Act, the deadline for taking that initial RMD was April 1, 2020. Now, thanks to the CARES Act, you can put off any and all RMDs that you otherwise would have had to take this year. For 2021 and beyond, the RMD rules will be applied as if 2020 never happened. In other words, all the RMD deadlines will be pushed back by one year, and any deadlines that otherwise would have applied for 2020 will simply be ignored.
Tax Deadline is July 15
Extensions generally now apply to all taxpayers that have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020. Individuals, trusts, estates, corporations and other non-corporate tax filers qualify for the extra time. This means that anyone, including Americans who live and work abroad, can now wait until July 15 to file their 2019 federal income tax return and pay any tax due.
Extensions
If you cannot file by July 15th, an extension can be filed to give you extra time. The extension must be filed by July 15th and will give you until October 15th to file. All tax owed must be paid by July 15th to avoid interest and penalties.
Estimated Tax Payments
Q1 and Q2 2020 estimated tax payments are extended until July 15th.
State Deadlines
Many states (including DC) [AL, AR, AZ, CA, CO, CT, DC, DE, GA, IL, IN, KS, KY, LA, MA, ME, MD, MI, MN, MO, MT, NC, ND, NE, NM, NY, OH, OK, OR, PA, RI, SC, TN UT, VT, WI, WV] and USVI have changed from 4/15 to 7/15 filing and payments deadline for coronavirus pandemic. Eight states [IA (7/31), HI, (7/20), ID (6/15), NH (6/15) MS (5/15), OR (4/30), VA (6/1), WA (6/15)] and Puerto Rico (6/15) changed to other filing and payments deadline. One state with a personal income tax (NJ) has not yet provided guidance on filing and payment extension (note – NJ has passed legislation but not yet signed by the Governor to provide extension to 7/15.)
Relief for business owners and self-employed people
If your business is struggling, you may be able to get some help from the federal Small Business Administration (SBA), which is authorized to provide loans to small businesses on an as-needed basis. There are two types of relief you can apply for.
Economic Injury Disaster Loans
Traditionally, low-interest SBA Economic Injury Disaster Loans (EIDLs) have been available to small businesses following a disaster declaration; these are authorized by Section 7(a) of the Small Business Act. EIDLs are commonly granted on a local level following a natural disaster (such as a hurricane or a tornado). But right now they are authorized for small businesses in all U.S. states and territories due to the COVID-19 pandemic. Currently, each disaster loan provides up to $2 million to pay fixed debts, payroll, accounts payable, and other bills. The interest rate is fixed at 3.75 percent for small businesses and 2.75 percent for non-profits. EIDLs can be repaid over a period of up to 30 years. Additionally, due to COVID-19, the SBA is providing advances of up to $10,000 on EIDLs for businesses experiencing a temporary loss of revenue. Funds are available within three days after applying, and the loan advance does not have to be repaid. These funds are available to businesses operating in the U.S. only.
Small business owners can apply for an EIDL and advance here: https://covid19relief.sba.gov/#/
Paycheck Protection Program
The Paycheck Protection Program (PPP) is an expansion of the existing 7(a) loan program, authorized by the recently passed Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
Who’s Eligible?
You are covered if your business was in operation as of February 15, 2020, and you had either (a) employees for whom you paid salaries and payroll taxes or (b) 1099-MISC independent contractors. Small businesses that employ 500 or fewer employees, including sole proprietors, independent contractors, certain non-profits, veterans’ organizations, tribal businesses, and self-employed workers, are all eligible for PPP relief. “Self-employed” workers are who you would think they are, the sole proprietors who file Schedule C with their Form 1040. IRC Section 1402 identifies them as those who regularly carry on a trade or business within the meaning of tax code Section 1402.
How Much Aid Is Available?
Small businesses can borrow 250 percent of their average monthly payroll expenses during the one-year period before the loan is taken, up to $10 million. For example, if your monthly payroll average is $10,000, you can borrow $25,000 ($10,000 x 250 percent). At $1 million, you can borrow $2.5 million.
How Much of the Loan Is Forgiven?
Principal amounts used for payroll, mortgage interest, rent, and utility payments during an eight-week period (starting with the loan origination date) between February 15, 2020, and June 30, 2020, will be forgiven. If the full principal is forgiven, you are not liable for the interest accrued over that eight-week period—and, as an added bonus, the canceled amounts are not considered taxable income.
Warning: These loans have many restrictions and stipulations. Let’s discuss before you apply.
How to Apply for a PPP
Unlike EIDLs, which run directly through the SBA, PPP loans go through approved third-party lenders. Talk to your bank or your local SBA office (given the current demands on the SBA, your bank is the best place to start). If You’re Going to Apply, Do It Now. The funds are already running low.
We are here to help you in any way you need in this process. Don’t hesitate to get in touch to discuss your situation. Be safe and take care.
Sincerely,
Christie DuChateau – christie@bnctax.com